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SBA issues notice detailing remittance of EIDL advances
On January 8, the Small Business Administration (SBA) issued a procedural notice discussing the repeal of Section 1110(e)(6) of the CARES Act, which required the SBA to deduct the amount of any Economic Injury Disaster Loan (EIDL) advance received by a Paycheck Protection Program (PPP) borrower from the PPP forgiveness payment from the SBA to the PPP lender. According to the notice, effective immediately, the SBA will no longer deduct EIDL advances from PPP forgiveness payments and will apply this change to any SBA forgiveness payments that were confirmed by December 29, 2020 or later.
Additionally, for any forgiveness payments that were already reduced by an EIDL advance, the SBA will automatically remit a reconciliation payment to the PPP lender that will include the advance amount, plus interest through the remittance date. The SBA notes that the PPP lender does not need to request the reconciliation payment, but must notify the borrower of the payment, re-amortize the loan, and notify the borrower of the next payment amount or whether the loan has been paid in full.
Another court dismisses PPP agent fees suit
On January 6, the U.S. District Court for the Central District of California issued an order dismissing a putative class action against two national banks alleging that the banks owe fees to agents that helped businesses file applications for the Paycheck Protection Program (PPP). The named plaintiff, a consulting company that aided borrowers in applying for federally guaranteed loans through the PPP, argued that its agents were entitled to fees from the banks that provided PPP loans. The court disagreed, finding that the CARES Act and its implementing regulations do not require lenders to pay agent fees absent an express agreement between an agent and the lender. The court further found that “nothing behind language in the CARES Act suggests that Congress intended to create an implied private right of action.”
The court’s decision follows rulings issued by other federal courts, which have also dismissed similar agent fee actions (covered by InfoBytes here, here, here, and here).
Maryland extends restrictions on repossessions and residential foreclosures
On December 17, 2020, the governor of Maryland issued an executive order that further prohibits certain repossessions, suspends foreclosures of occupied residential property absent adherence to specific procedural protections, including those provided by the federal CARES Act. The foreclosure suspension is in effect until the “re-start date,” which is either (1) January 31, 2021, or (2) such later date as established by the commissioner of financial regulation, not to be more than 30 days after the state of emergency is terminated.
Court: Lender does not owe PPP fees to law firm
On December 15, the U.S. District Court for the District of Arizona issued an order dismissing an action against a California bank over whether a law firm is entitled to a portion of the fees paid by the Small Business Administration (SBA) to lenders making loans under the Paycheck Protection Program (PPP). According to the order, the law firm argued that it assisted a borrower in applying for a PPP loan from the bank and was therefore entitled to collect an agent fee. The court was unpersuaded and dismissed the action, concluding that the CARES Act—which created the PPP—“undermines, rather than supports” the law firm’s position. While “the statute affirmatively obligates the SBA Administrator to pay processing fees to lenders that make PPP loans,” it “does not create an affirmative obligation on the part of the SBA Administrator, or anybody else, to pay a fee to agents who assist borrowers in applying for PPP loans,” the court ruled. Instead, the statute “‘merely establishes that there can be a ceiling on the amount of such fees if they are collected.’” The court’s decision follows rulings issued by other federal courts, which have also dismissed similar agent fee actions (covered by InfoBytes here, here, and here). The order states that to date, every court that has addressed this question has concluded that PPP lenders do not have a mandatory obligation to pay fees to agents assisting borrowers with their PPP loan applications.
Bipartisan Covid-19 legislation includes new PPP funding
On December 14, congressional lawmakers released the details of bipartisan Covid-19 relief legislation (and accompanying memorandum), titled “the Emergency Coronavirus Relief Act of 2020,” which would provide $300 billion to the U.S. Small Business Administration to allow for second forgivable Paycheck Protection Program (PPP) loans to certain businesses after the program’s lending expired in August (covered by InfoBytes here). In addition to capping the maximum PPP loan amount at $2 million, the proposed legislation would limit eligibility of new PPP loans to (i) businesses with 300 or fewer employees that have sustained a 30 percent revenue loss in any quarter of 2020; and (ii) non-lobbying, tax-exempt organizations that have 150 employees or fewer. Additionally, the legislation clarifies that business expenses paid for with the proceeds of PPP loans are tax deductible, and simplifies the loan forgiveness process for loans $150,000 or less. Lastly, the legislation includes set-asides for (i) small businesses with 10 or fewer employees; (ii) loans made by small community lenders, including Community Development Financial Institutions, credit unions, Minority Depository Institutions; and (iii) the Minority Business Development Agency.
Waters recommends Biden reverse several of Trump's actions
On December 4, Chairman of the House Financial Services Committee, Maxine Waters (D-CA) sent a letter to President-Elect Biden providing a list of regulations and other executive actions taken by the Trump administration that the Biden administration should immediately reverse, as well as recommendations for strengthening other regulations. Among other things, Waters recommended that the Biden administration (i) issue an executive order to prevent evictions by “directing the CDC to extend and improve its public health order so people can remain in their homes until emergency rental assistance is available”; (ii) amend HUD and FHFA policies that impose restrictions and increased costs for certain loans that go into forbearance prior to FHA endorsement or purchase by Fannie Mae or Freddie Mac to ensure these loans are still eligible for FHA insurance and purchase by Fannie and Freddie; and (iii) fully use Coronavirus Aid, Relief, and Economic Security (CARES) Act lending authorities, many of which will terminate at the end of December (covered by InfoBytes here).
Waters also urged the Biden administration to take measures to ensure consumer protections, including by, among other things, dismissing Director Kathy Kraninger, enforcing CARES Act protections, and directing the CFPB to (i) issue guidance to financial institutions to ensure affected borrowers are afforded “appropriate forbearance and loan modifications”; (ii) “work to replace the ’Payday, Vehicle Title, and Certain High-Cost Installment Loans’ rule with [one] that protects consumers from predatory lenders”; (iii) restore the Bureau’s Office of Fair Lending and Equal Opportunity’s roles and responsibilities; and (iv) rescind its recently issued final rule amending certain debt collection rules (covered by InfoBytes here), and instead strengthen “consumer protections against abusive debt collection practices.” Other recommendations address diversity and inclusion, financial stability, investor protection, affordable housing, and international development.
VA proposes partial claim payment program
On December 9, the Department of Veterans Affairs (VA) published a proposed rule in the Federal Register, which would establish a temporary program to help veterans return to making normal loan payments on VA-guaranteed loans after exiting a Coronavirus Aid, Relief, and Economic Security Act (CARES Act) forbearance period, known as “the COVID–19 Veterans Assistance Partial Claim Payment program” (PCP). The proposal would allow the VA to assist a veteran exiting a CARES Act forbearance by purchasing the amount of the veteran’s CARES Act indebtedness needed to bring the loan current, known as a “partial claim payment.” In exchange for the VA’s partial claim payment, the veteran would have to agree to repay the VA the amount of the PCP.
In order to qualify for the PCP, servicers must first evaluate the borrower for loss-mitigation options already available in the VA program. For a loan to qualify for a PCP, among other things, (i) the guaranteed loan must have been either current or less than 30 days past due on March 1, 2020; (ii) the borrower must have received a CARES Act forbearance and missed at least one scheduled monthly payment; and (iii) there remains at least one unpaid monthly payment that the veteran did not make while under a CARES Act forbearance. Moreover, the amount of the partial claim payment cannot exceed 15 percent of the unpaid principal balance of the guaranteed loan on the date the borrower entered into the CARES Act forbearance. The PCP would have an annual interest rate fixed at 1 percent, with an automatic 60-month deferment period while interest accrues, and a total term of 120 months.
The proposal does not include an effective date, but the VA requests comments on how a final rule that is not effective for 30 or 60 days following publication might negatively impact veterans, servicers, and other stakeholders. Additionally, the VA asks whether there would be enough time for industry implementation of the partial claim payment program if the final rule is effective 7 days after publication.
Comments on the proposal are due by January 8, 2021.
SBA addresses Loan Necessity Questionnaire review process
On December 9, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department updated the PPP FAQs to include a question covering the SBA’s Loan Necessity Questionnaire (for-profit here, non-profit here). Specifically, the SBA has sent a Loan Necessity Questionnaire to lenders to be provided to PPP borrowers that received loans of $2 million or more in order to perform a review for eligibility, fraud or abuse, and compliance with loan forgiveness requirements. The FAQs emphasize that being asked to complete a questionnaire “does not mean that SBA is challenging a borrower’s certification that is required by the CARES Act.” Moreover, after a borrower submits its completed questionnaire, the FAQs note that the SBA may request additional information, if necessary, to complete its review. At this point, the SBA states that borrowers will have an opportunity to provide a narrative response explaining the circumstances that provided the basis for their good-faith loan necessity certification. The SBA intends to “take into account the borrower’s circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application.”
SBA issues tax guidance for Section 1112 of CARES Act
On December 8, the Small Business Administration (SBA) released a guidance document covering tax issues relating to payments made on behalf of borrowers under Section 1112 of the CARES Act. Specifically, Section 1112 of the CARES Act authorizes the SBA to cover, for a six-month period, the principal, interest, and any associated fees that small businesses owe on 7(a) loans, 504 loans, and microloans. The guidance states, among other things, that lenders are responsible for issuing Form 1099-MISC for 7(a) loans that have not been purchased by SBA, and for 7(a) loans that have been purchased by SBA and are serviced by the lender. Additionally, Microloan Intermediaries are responsible for issuing Form 1099-MISC for the microloans serviced by the intermediaries. However, the SBA is responsible for issuing Form 1099-MISC for (i) 7(a) loans that have been purchased, and are serviced, by SBA; (ii) microloans that are serviced by SBA; and (iii) all 504 loans.
Another district court dismisses PPP agent fee class action
On November 16, the U.S. District Court for the Central District of California issued an order dismissing a putative class action against several large banks over whether agents providing consulting, legal, accounting, and tax preparation services are entitled to “agent fees” from lenders for helping businesses secure loans under the Paycheck Protection Program (PPP). The agents argued that the banks received lender fees from the government and funded PPP loans for borrowers but failed to and refused to pay any agent fees. The court found, however, that the agents failed to allege facts sufficient to establish standing or to “inform any Defendant of its particular role in the alleged general harm,” and instead relied “merely on generalized, conclusory allegations.” While the court gave the agents 21 days to amend their complaint, it noted that “[b]ecause the CARES Act does not provide a private cause of action to recover agent fees absent an agreement between agent and lender, it appears unlikely that Plaintiffs can overcome the [identified] deficiencies.” The court’s decision follows decisions issued by other federal courts, which have also dismissed similar agent fee class actions (see InfoBytes here and here).